Commentary: China, Brazil, Indonesia currency funds are good picks

NeilGeorge

Even better is blaming something as esoteric as foreign currency markets for the slowness of job creation. Since most Americans don’t care about forex to begin with, you won’t have to explain much.

Any investor with a brain has noticed the lack of comprehension of basic macro economics among our politicians. But clueless or not, this doesn’t stop Congress from running with its talking points about jobs and deficits. And right now the big idea is that the world’s major producing economies are getting rich by ditching their currencies. This in turn is costing manufacturing jobs and union coffers — and the U.S. has to do something to stop it.

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in what looks to be an uphill climb.

This idea is perfect because voters can’t understand the argument let alone debunk it. Even better is that the currency claims deflect blame from core issues that politicos would rather not bring up.

The only problem with the message is that it isn’t true.

Trading in the past

Generations ago, currencies equalized international trade and investment flows. Industrious countries saw products and services rise in demand, and their currencies would strengthen as a result. Those same industrious and successful countries would also see foreign investors clamoring to buy local stocks and bonds as well, in turn driving that currency higher. But this rising demand for exports and investment would eventually push the currencies of the successful nation higher — and in turn make their exports and investments too pricey to be an attractive buy.

So, all things being equal, the currency markets would create a balancing equilibrium in global trade. But as any economics student will quickly tell you, this textbook look at currency doesn’t work as cleanly as it used to do — if it ever really did.

As there are never really identical markets with the same labor supplies, raw material availability and costs, tax rates regulations and so on. Take for example the politically demonized market of China. If Congress thinks the U.S. could fire up an industrial complex employing 140,000 or more highly skilled electronics manufacturing in just a matter of months, they’d be sorely disappointed. But this is China’s expertise. Meanwhile, companies such as Intel Corp.
INTC, +0.28%
, Cisco Systems Inc.
CSCO, -0.17%
, Microsoft Corp.
MSFT, +1.29%
and others can’t fill existing job openings already in the U.S.

So even if the dollar soared against the Chinese renminbi, it wouldn’t result in a massive ramp up in high-tech manufacturing in places like Michigan or Missouri. Of course, don’t tell the politicians that.

Cashing in on currency change

So for starters, the shifting currency markets of the last several months isn’t a big deal — as even politicos know that wild swings wouldn’t be in anyone’s interests. The recent G-20 meeting of the Finance Ministers resulted in some pandering statements about cooperating – and despite overtures of currency trading tariffs and treasury selling, this is just posturing by the little guys. They’re just trying to be noticed as equals of the big guys such as the U.S. and EU.

Besides, a little bluster can’t stop the current plan of the Federal Reserve, Treasury and Congress from continuing to expand the debt and supply of U.S. dollars. And most importantly, it won’t stop the continued demand for investment and commerce flows that result in profits for currency traders.

So how do you cash in on this trend? First, start with the currency markets and focus on renminbi of China and real in Brazil. Both of these nations are putting the plan of slowed and more methodical easing to work.

While not on fire — look for the real and the renminbi to see further gains over time. And while neither are regularly traded like dollars, euros and yen — they are traded by financial institutions.

This is basis behind the Exchange Traded Funds (ETFs) that use the hedge-trading books of banks to try to track the values of these currencies. Buy the WisdomTree China Yuan (renminbi) Fund
CYB, -0.30%
at current levels. And for the real – again try the WisdomTree Dryfus Brazilian Real Fund
BZF, +0.60%
at current levels.

Other markets haven’t yet caught the market teams of the ETF fund companies so to cash in on these markets there are two ways of going.

Look to buy into the general stock markets of Indonesia, Vietnam and even Thailand to pick up the coming gains of the capital waves hitting their shores. The Indonesian market is well captured in a closed-end investment fund — the Aberdeen Indonesia Fund
IF, -0.58%
. Put this with the Thai Capital Fund
TF, -0.68%
.

Then for Vietnam — look at a smaller ETF gaining attention — the Market Vectors Vietnam fund
VNM, +0.00%
All three should be bought at current prices.

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